DnB NOR Group Bjørn Erik Næss, chief financial officer SEB Enskilda Nordic Banks Seminar, May 26 2010
Agenda DnB NOR in 2010 - status Basel III new regulations Actions ahead of Basel III Growth opportunities & ambitions 2
1st quarter 2010 Sound pre-tax operating profit before write-downs: NOK 4.9 billion (6.1) Continued positive cost trend Lower than expected write-downs on loans: NOK 0.9 billion (1.6) Profit to DnB NOR's shareholders: NOK 3.1 billion (3.1) Return on equity: 12.5 per cent (15.8) 3
Strong growth trend has continued in 2010 NOK million 6 109 Pre-tax operating profit before write-downs NOK million Profit for the period NOK million Profit for the period after minority interests 3 095 3 117 5 043 4 940 2 934 2 917 4 109 3 457 2 167 2 122 1 760 1 689 1 200 643 1Q09 2Q09 3Q09 4Q09 1Q10 1Q09 2Q09 3Q09 4Q09 1Q10 1Q09 2Q09 3Q09 4Q09 1Q10 4
Positive development in volume growth 1) NOK billion 971 910 1 022 1 016 957 950 1 192 1 174 1 115 1 126 1 121 1 128 1 109 1 117 1 093 1 085 1 047 1 062 1 046 1 043 1 053 1 037 31 Dec. 31 March 30 June 30 Sept. 31 Dec. 31 March 30 June 30 Sept. 31 Dec. 31 March 2007 2008 2009 2010 1) Figures at end of period DnB NOR Group DnB NOR Group excluding DnB NORD DnB NOR Group adjusted for exchange rate movements DnB NOR Group excluding DnB NORD, adjusted for exchange rate movements 5
Stable development in average interest rate spreads 1) Quarterly development in interest rate spread (per cent) 5.96 6.40 6.60 5.91 3.45 2.46 1.89 2.05 2.27 3-month NIBOR 1.24 1.30 1.16 1.01 0.98 1.04 0.88 0.81 0.97 1.58 1.60 1.63 1.61 1.58 1.34 1.12 1.16 1.16 1.16 1.13 1.12 0.68 0.33 0.30 0.29 0.23 0.29 Lending spread Combined spread - weighted average Deposit spread 1Q08 2Q08 3Q08 4Q08 1Q09 2Q09 3Q09 4Q09 1Q10 1) Excluding lending to and deposits from credit institutions and impaired loans 6
Continuous focus on cost reductions and efficiency improvements Realised and targeted cost savings Savings NOK million Process efficiency and general streamlining 850-950 Procurement 300-400 Retail Banking: Restructuring of Norwegian banking operations Staff/support functions: Centralisation and streamlining One IT: Coordination and consolidation 100-150 150-200 400-600 7
Still room for lowering our cost/income ratio 8
9 Basel III new regulations
Several analysis conclude that the proposed Basel III will be too tough on traditional banking models Equity capital requirements for global banks $221bn* RoE for global banks down from 13.3% to 5.4%* Increased funding needs Reduced lending growth Increase in prices Customers and economies will be negatively affected * Source: JP Morgan analysis: Global Banks - Too big to fail? Running the numbers 10
DnB NOR will be among the least affected of the European banks Capital deductions - Deductions for insurance subsidiaries already accounted for - Deferred tax assets and goodwill fully deducted Capital level - Already compliant - High-quality composition Counterparty risk - Minimal exposure to derivative markets 11
Only proposed changes in net stable funding ratio will create a shortfall Leverage ratio - Strong capitalisation and business model Deposit guarantee scheme - Already above EUR 100 000 and well funded Liquidity coverage ratio - Compliant as of today? Net stable funding ratio - Shortfall, deposit haircuts are unreasonably high 12
A very robust and high-quality capital structure Tier 1 capital ratio Nordic peers 1Q2010, Basel II 14.2 % 14.6 % 13.9 % 13.5 % 13.7 % 11.2 % 12.0 % 9.4 % * Full implementation of IRB ** Full IRB and Swedish model for calibrating insurance exposure 13
The strongest leverage ratio among Nordic peers Leverage ratio* Nordic peers 1Q2010 * Tier 1/total assets 14
13 per cent return on equity in 2012 (and beyond) just as ambitious as the 16 per cent target set in 2007 Simplified illustration of effects of changes on RoE targets set in 2007 and in 2010 16 % Interest on equity Increased capitalisation 13 % Interest on equity Contribution from leverage Lower interest rates Contribution from leverage 2007 2010 15
Several variables will help DnB NOR achieve its 13 per cent RoE target in 2012 Volume growth Increased interest rates Reduced costs Lower write-downs Normalised tax level of 24 per cent 16
17 Actions ahead of Basel III
Strengthened capitalisation levels through retained earnings and NOK 14 bln share issue in 2009 Per cent 11.7 12.0 9.3 9.4 9.3 9.4 8.5 8.6 5.8 6.7 6.1 7.0 31 December 31 March 31 December 31 March 2008 2009 1) 2009 2010 1) Equity Tier 1 capital ratio Tier 1 capital ratio Tier 1 capital ratio subject to full IRB implementation 1) Including 50 per cent of profit for the period 18
Raised level of long-term funding, tightened internal limits for short-term funding Average residual maturity, long-term senior debt and covered bonds (years) Share of stable long-term funding* Internal target** ** * Deposits from customers, subordinated debt, covered bonds and senior debt > 12 months residual maturity ** Internal target for stable long-term funding increased from 88% to 90% in 2009 19
Stable access to long-term funding longer maturities at competitive prices 2010 NOK billion Maturity Covered bonds 41.1 6.7 Senior bonds 12.1 5.7 Spread (3-month Euribor) Total 53.2 6.5 49bp 2009 NOK billion Maturity Spread Covered bonds 10.7 12.1 Covered bonds, Norges Bank (central bank) 90.3 4.2 Senior bonds 39.0 4.6 Total 139.1 4.9 50bp 2008 NOK billion Maturity Spread Covered bonds 57.5 5.9 Covered bonds, Norges Bank (central bank) 29.1 2.8 Senior bonds 100.5 3.7 Total 187.2 4.3 48bp 20
Further issues Continued focus on long term funding - Increased emphasis on funding diversification by geography and by intruments (e.g. DnB NOR Naeringskreditt) Controlled balance sheet growth Provide for more selective deposit gathering strategies High attention on Basel III signals - uncertainties on final definitions and calibrations 21
Growth opportunities & ambitions 22
Macroeconomic outlook 2010 Growth in world economy stronger than expected, but still subject to considerable uncertainty Geographical variations in rate of recovery - EU countries lagging behind High debt and high unemployment in some EU countries may delay an economic recovery The Norwegian economy is far more robust than most other European economies Developments in the Norwegian labour and housing markets may indicate growth - credit demand lagging behind 23
Still an untapped potential in Norway Total market share DnB NOR - private and corporate 24
Significant growth ambitions based on Norwegian traditional industries Solid position in our home market and within selected industries internationally Growth opportunities within industries where we already have a strong position Energy will be the most important growth area over the next 2-3 years A high-quality customer portfolio Continue to create value through a stronger emphasis on non lending income 25
Financial ambitions Ambitions 2012 Long-term ambitions NOK 22-25 billion in pre-tax operating profits before write-downs Return on equity above 13 per cent NOK 2 billion in cost reductions Be among the best capitalised banks in the Nordics Cost/income ratio below 46 per cent Long-term AA rating Approx 50 per cent dividend 26
Thank you